Ouch

As it turns out, the magic number was 5,048, which the Nasdaq hit on March 10, 2000. What's happened since has seemed more like black magic, vivid confirmation of the fact that the stock market plays rough. Technology's power to drive an economic boom has been proven, but so has its ability to provoke speculation, failure, and confusion.

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The Wired Index was founded three years ago to "mirror the arc of the new economy as it emerges from the heart of the late industrial age." Our goal was to reinvent the 105-year-old Dow Jones Industrial Average, using the share prices of public companies to monitor the rise of a technology-enabled, borderless economy. The Index's 40 companies have demonstrated a mastery of five essentials needed to prosper in this environment: innovation, intelligent use of new tools, strategic vision, global reach, and, above all, networked communication.

Amid the recent turbulence, the Wired Index got walloped right along with everyone else. It fell nearly 41 percent in the 12 months to April 2, 2001 – less than the Nasdaq's 58 percent drop, but more than the Standard & Poor 500's 24 percent decline or the Dow's 13 percent fall.

The final revenge of the old economy? Not quite. Over the long term, the Wired Index shows an unmistakable migration of value toward the new. From its launch in April 1998 to April 2, 2001, the Wired Index rose 69 percent. The S&P 500 rose by 3.4 percent during the same period. The Dow gained just over 10 percent, and the Nasdaq fell 3.5 percent.

Indeed, most members of the Wired Index are doing just fine in the real world of quarterly financials, generating numbers that would make any old-guard CEO the envy of his country club. In 2000, Wired Index companies topped 20 percent average revenue growth – four times the rate of the S&P 500, and four times that of the US economy as a whole. And despite the dramatically lowered expectations of 2001, many of these companies are on track to manage similar feats again this year.

Today, from the Fortune 500 to Main Street, information technology rules; the initial phase of the revolution is over, and everybody is better off because of it. The next round of growth will come from using technology to recast the entire range of business tasks and processes, from concept to execution, from accounting to marketing to inventory, at every link in the supply chain.

Making this leap will be essential for businesses to overcome what Harvard Business School's Michael Porter calls the paradox of Internet-enabled competition. The very qualities of the Net that lower barriers to entry – standardization, low cost, and worldwide scope – also make it difficult for businesses to survive in the long term. If everybody can use the Net – as, indeed, everyone can – then how can one company distinguish itself enough to gain an advantage over others?

The answer, Porter contends, lies in reinventing the value chain, defined as "the series of activities required to produce and deliver a product or service that enables a company to offer unique value." Competitive differentiation hinges less on what you do than how you do it. Only by enmeshing suppliers, subcontractors, partners, and customers in a web of real-time communication with internal operations can companies evolve quickly and sustainably.

Shifting ground inevitably throws some companies off balance. Following the Dow's tradition, we try to keep the Wired Index stable, but when one constituent undergoes a fundamental transformation – typically through merger, acquisition, bankruptcy, or insolvency – we take the opportunity to reexamine the list in light of emerging trends. (Note that only General Electric survives from the Dow's original dozen choices.) WorldCom sent us back to the drawing board when it split off its crown-jewel data services as a tracking stock. Lacking a market capitalization, a tracking stock can't figure into an index that weights elements by this metric. Thus, WorldCom had to go. We also decided to send Lucent and Globalstar back to the workaday world.

Lucent entered the Wired Index blessed with Bell Laboratories' unique technology legacy. Unhappily, the other half of its birthright – sclerotic AT&T-style top-down management – has doomed the company in the competitive scramble that Bell's own technology helped spark.

As for Globalstar, it built a best-of-breed global satellite telephone network – a brave new enterprise if there ever was one – but came up short in creating enough value for its customers, real or potential, to offset the massive cost of skyborne communications. As terrestrial wireless networks quickly encircled the globe, Globalstar's dream became so much pie in the sky.

In their place, we've chosen three companies – eBay, WPP Group, and Millennium Pharmaceuticals – that embody three forces we expect to gather momentum in the wake of the current downturn: the integration of value chains, the shaping of perceptions through new media, and the growing productivity of genomic sciences.

Two of Porter's favorite words are integration and uniqueness, both of which will be major themes in the new economy's next phase. Integration is key because an effective network of communication and feedback makes a formidable barrier to would-be competitors. Uniqueness, on the other hand, is the binding force in an environment where it costs nothing for customers to take their business elsewhere.

On both counts, eBay gets high marks. The online auctioneer now mediates transactions among 22 million members – and takes a cut each time – providing the liquidity and infrastructure the company needs to transform its platform into a sales channel for retail vendors of all kinds.

Among online business models, the most disappointing has been the advertising-supported system borrowed from magazines and broadcast. If advertisers haven't gotten their money's worth out of the Web, it's because they've failed to meet the medium on its own terms. Some observers argue that marketing doesn't matter when consumers have so much information at their fingertips. But, in fact, it matters more than ever. In a world awash in innovation, the hard part isn't creating something fresh; the challenge is getting potential customers to recognize its value.

Thus, the field is wide open to companies that understand the Net's distinctive potential to communicate, differentiate, and build trust. New applications like P2P file-sharing setups, webloggers, and the coming avalanche of wireless services create a wealth of opportunities while adding urgency to the demands of cross-media marketing. Reinventing advertising for the Net is a task that intersects with lightning rod issues involving identity, privacy, and the role of commerce in civilized life. Which is why a diverse international operation like WPP Group can pull it off.

Yesterday's great technological revolution empowers eBay and WPP. Meanwhile, tomorrow's – biotech – has yet to hit its stride. The celebrated first draft of the human genome, published in June 2000, provides a broad, stable intellectual base on which to build broader, stabler biotech companies. During the past year, biotech has begun to evolve from an essentially handcrafted discipline into an industrial pursuit. Mass experimentation will lead, before long, to massive value creation.

Millennium Pharmaceuticals is a front-runner in this trend, the first to attempt to build a fast-track drug discovery and development platform based on bioinformatics. This burgeoning field is the leading edge of information technology's ability to turn a hidebound industry upside down. Increasing the Wired Index's biotech weighting is a prudent effort to keep up.

Change feeds on itself. As companies transform themselves in response to new competitive forces – faster decisionmaking, flatter business models, globalization – they in turn transform their environment.

Whatever else recent events have shown, they have demonstrated how entrepreneurs can alter the world with a good idea. Those who launch nascent ventures may not always succeed, and they may not always achieve the riches they dream of. But they do have a lasting impact. Stock market downturns suck productive energy back into the bottle, but they also redirect it to potentially greener fields. One novel idea at a time, the economy and the world around it change – now faster than ever.

Though the dotcom fever has broken, the innovations carry on. As James Morgan, CEO of Index stalwart Applied Materials, wrote in his 2000 report, "The great shakeout in the dotcom world will likely be remembered as the true start of the new economy." Here we go.

Index Performance

April 3, 2000 – April 2, 2001

DOW

-12.9%

S&P 500

-23.9%

WIRX

-40.7%

NASDAQ

-57.8%

Index Performance

April 1, 1998 – April 2, 2001

WIRX

+68.8%

DOW

+10.3%

S&P 500

+3.4%

NASDAQ

-3.5%

About The Wired Index

The Wired Index averages share price changes for 40 companies. Like the S&P 500 and most modern stock averages, but unlike the Dow, the Wired Index is weighted by market cap. That is, a change in the price of a large company moves the average proportionally more than an equal change in the value of a small one. To prevent the largest members from overdetermining the Index's value, weighting is governed by a $40 billion market cap ceiling.

The Index's value is calculated daily by HSBC's Quantitative Techniques Division. The Wired Index Fund (IWIRX), a mutual fund based on the Wired Index, is independently owned and operated by Investec, and maintains assets separately for US and non-US investors. On April 2, 2001, the Fund had a total asset value of $354 million.

With a rough draft of the human genome in hand, drug companies are getting down to the dirty work of sifting through some 140,000 genes to find those associated with disease. Affymetrix's DNA microarrays – glass chips that sprout tendrils of DNA like blades of grass – make the job go faster.By washing a gene chip in a nucleotide solution and seeing what sticks to what, scientists can find the sequences they're looking for.

But just as Affymetrix's sales are beginning to take off, outsiders are muscling in – and they're not a bunch of weakling startups. Agilent, 3M, Corning, and Motorola are gunning for Affy's 80 percent share of the $350 million gene-chip market, which is expected to reach $1 billion by 2005.

The discovery in March of errors in chips representing mouse tissues gave competitors an opportunity to crow, but it affected only 6 percent of Affymetrix's production run. Meanwhile, the company's next-generation arrays hold 50 percent more DNA than its current products, and 17 new chips are scheduled for release this year. Though Affymetrix has first-mover advantage and a 100-patent grip on the technology, competition will be fierce. Innovation is the only option.

Having grown in the past eight decades from a Shanghai storefront into a gargantuan combine of insurance agencies operating in 130 countries, AIG spent last year designing policies that mitigate new risks arising from the global network infrastructure. Emblematic venture: Avantrust, a partnership with Dun & Bradstreet aiming to make the Net safe for B2B transactions through an ecommerce platform that insures everything from customer credit to delivery of goods.

The Net also plays a pivotal role in AIG's efforts to reel in retail customers. After launching a suite of Web sites in early 2000, the company joined with Prudential and Kemper this year to found a Net-only insurance agency, Fusura. Meanwhile, links at E*Trade and Priceline are funneling investors and travelers directly to AIG.

E-insurance may well boost AIG's earnings growth beyond this year's 11.5 percent (which already gives the company a P/E nearly twice that of competitors like Chubb and St. Paul Companies). But AIG isn't neglecting its traditional role as the global village's insurance agency; it recently penetrated the life insurance markets in Vietnam and India, and it's also providing a hedge against political and investment risk in Latin America. In a world teetering between prosperity and disaster, AIG stands to profit either way.

AOL's all-stock purchase of Time Warner has got to be one of the best business decisions in recent history. Trading growth for cash flow may not have seemed to make sense 18 months ago, but in hindsight, who can argue?

Already, the combined entity is more than the sum of its parts. Promotions on AOL yielded 500,000 new subscriptions to Time Inc. magazines last year. And the number of advertisers that placed media in three of AOLTW's top venues (AOL, Time Inc., and Turner Broadcasting) doubled in the initial months of 2001. Q1 earnings beat expectations; to keep the ball rolling through the Q2 slowdown, the company slashed 2,400 jobs and made plans to cut 3,800 more.

Huge numbers give AOLTW the gravity to pull in partners throughout the technoverse: Gateway will help it produce Internet appliances, Toshiba is negotiating to distribute its content to mobile phones, and Nortel will develop and market its enterprise voice services. Given increasingly stiff competition in Europe and the paltry results of deals with Bertelsmann AG (AOL Germany) and Vivendi Universal (AOL Italy), the media giant is focusing on Asia. NTTDoCoMo will help build AOL Japan, and various Indian partners are lined up to receive a $100 million investment next year.

The über-merger may take years to sort itself out. But it's hard not to be optimistic when $11 billion in revenue is being funneled into a broadband pipeline that already reaches 13 million cable TV subscribers – not to mention 165 million chatterboxes using ICQ and instant messaging. AOL everywhere? Sooner or later.

The premier maker of the chip fab machines that keep Moore's law in force, Applied Materials has managed to navigate the swells and troughs of the silicon industry with a steady tack toward a future of ubiquitous computing. But the semiconductor downturn that began last winter was as unexpected as it was swift: RAM prices sank, PC sales slumped, and the wireless boom fizzled.

In the aftermath, computer vendors who can't sell faster boxes aren't likely to push chipmakers to upgrade from .18- to .13-micron line widths. And until service providers untangle the mobile Web, chip suppliers have little incentive to outfit their plants for more power-efficient copper lines. Applied Materials was able to almost double its revenue in 2000 because its customers budgeted their capital expenses before the Nasdaq crash, but it reduced earnings estimates twice during the first two months of 2001.

Applied Materials' latest mainsail: equipment that accommodates 300-mm wafers. The new larger size enables manufacturers to produce more chips per wafer, cutting fabrication costs by as much as 30 percent – an attractive prospect to customers like Intel, the only major chipmaker planning to increase capital expenditures in 2001. And then there's the ballast of Applied Materials' $4.2 billion war chest. "In a downturn," observes Lehman Brothers analyst Dan Niles, "the companies with the most cash win."

Although it throws a wrench into the Wired Index, Aventis' decision to sell its CropScience and Animal Nutrition divisions – the very parts of the company that prompted us to add Aventis last year – makes sense. Sloughing off these biotech units will let Aventis concentrate on its thriving business in prescription drugs and vaccines. More to the point, the move will shift whatever liability CropScience accrues as a result of last year's StarLink debacle – in which genetically modified feed corn found its way into the human food supply – off Aventis' books.

StarLink aside, Aventis had a fine 2000. CEO Jürgen Dormann managed to wring $355 million in cost savings from the 1999 merger between Hoechst and Rhône-Poulenc that created the company, while sales of allergy drug Allegra grew nearly 59 percent, contributing to 54 percent revenue growth. This year, Aventis expects merger-related synergies to save another $417 million. And it will introduce two promising drugs: Ketek, the first in a new class of antibiotic, and Lantus, a long-acting insulin.

Meanwhile, the nascent GM food industry seems to get thrown out of any house that invites it in. Monsanto, the frankenpharmer previously part of the Index, was acquired by Pharmacia, which spun it right back out again. Similarly, Novartis and AstraZeneca combined and then jettisoned their ag divisions to form Syngenta. Once Aventis is out of the game, we'll be looking for a pure play to take its place. Using genomics to feed the world may prove an idea too powerful to ignore.

The tough thing about being a pioneer is keeping up with the frontier. BroadVision was first with a set of back-end ecommerce tools intended to work right out of the box, helping fast-growing companies move even faster. But the company itself was slow to follow up with a Java implementation of its One-to-One Enterprise suite.

Last year, it paid the price. American Airlines, an account reportedly worth $1.5 million, abandoned One-to-One in favor of the Java-based Dynamo Commerce Suite from Art Technology Group. At the same time, costs spiraled as nonstop hiring and lavish marketing drove operating expenses up 42 percent in Q4. Worried investors responded by wiping out more than 80 percent of the company's market cap during fiscal 2000.

One-to-One 5.5, released in June 2000, was criticized as the same old code with a Java veneer, but BroadVision should recover. The fully Java-compliant version 6.0 came out in March, and the boxed-software approach is still attractive to ecommerce operations that don't have a team of programmers to spare. If CEO Pehong Chen can rein in spending and refocus the product development strategy, BroadVision can continue to define relationships between vendors and customers on the Web.

When the stock market plummets, trading volume shrinks and broker commissions evaporate like raindrops on hot pavement. Such fees account for nearly 40 percent of Charles Schwab's revenue. After trades dropped 13 percent between January and February – down 31 percent from the same period last year – Schwab shed roughly 3,000 jobs. Now the master of reinvention – having pioneered discount brokering and then retooled for the Web – is doing it again. The new position: money manager to the masses.

Schwab is betting that recurring fees charged for looking after private holdings will preserve its 10-year average of 24 percent annual revenue growth. It already offers advisory services to wealthy customers as well as online tools like Sell Analyzer, which figures out which securities to unload at tax time. With the acquisition of US Trust and its upscale retail banking clientele, revenue from asset management grew to 51 percent in 2000.

There's only one problem: having assets to manage. The Nasdaq's plunge melted Schwab's customer asset base from nearly $1 trillion last September to $845 billion in February 2001. In the current climate, though, diversification in any form is worthwhile. And in any climate, 7.6 million active investor accounts – Schwab's current roster – is something to bank on.

One strike and you're out. Cisco, The top dog in networking equipment, was blindsided by the precipitous tech-spending slowdown of late 2000 and missed its numbers for the first time in 11 years. Despite revenue growth of 55 percent in Q2 of fiscal 2001, earnings were 1 cent per share less than analysts had expected. Briefly the world's most valuable company, Cisco now also holds the distinction of having lost more market cap than any firm in UShistory – more than $450 billion between March 2000 and March 2001.

Among Wall Street's chief worries is the fact that no one has ever kept a $200 billion business growing at Cisco's target of 30 to 50 percent annually. As Merrill Lynch analyst Steven Milunovich notes, once a company hits about $30 billion in annual sales – a level Cisco will reach next year, slowdown notwithstanding – it tends to lose steam. Booming divisions get dragged down by sluggish ones; sprawling supplier networks become less and less efficient.

Bringing such massive, fragmented organizations to heel is among the fondest hopes of ebusiness. True, Cisco is already one of the most wired companies on earth, but the Net-driven push toward enterprise integration and supply-chain management is only just hitting full swing. If the power of the network can smash the $30 billion barrier, Cisco will be the first to know.

The company formerly known as DaimlerBenz was cruising in the fast lane when it acquired 34 percent of Mitsubishi in October 2000. Chair Jürgen Schrempp's strategy – to establish pit stops in Europe, the US, and Asia as a hedge against a downturn in any one region – looked like a direct route to global automotive paradise.

Not so fast. Chrysler's management had already walked out en masse when Schrempp refused to share the wheel. On its own – and suddenly squeezed by a global car glut, softened US demand, and engine trouble in Japan – the Stuttgart brassproved far less adept at cutting costs. Now, despite a banner year for the Benz division, the company finds itself weighed down by $4 billion in Chrysler plant closings and severance packages, not to mention Kirk Kirkorian's $9 billion shareholder lawsuit. What's more, the auto giant's market cap tumbled 38 percent between January 1, 2000, and March 20, 2001.

Dismal stuff. But Schrempp's technology strategy might pay off handsomely in the long run. By 2004, the company expects to begin boosting economies of scale by sharing parts across divisions – for example, putting Mercedes transmissions in Chryslers. At the same time, Covisint, the online components exchange partially owned by DaimlerChrysler's DCX Net, will have accrued a critical mass of suppliers. But before it can start saving money for DaimlerChrysler, Covisint will have to get around roadblocks like restrictive union contracts and vendors wary of sharing a network with competitors.

Perhaps there's a lesson in all this for Schrempp: You can load up on technology that helps people work together, but it helps if you're willing to cooperate yourself.

Imagine the ideal dotcom: Practically infinite scale. Self-perpetuating growth. Viral customer acquisition. No warehouses, no inventory, no limits. Put it all together and you get eBay, flea market to the world, which now boasts 22 million members trading $5 billion worth of goods annually.

While Amazon.com and Yahoo! are finding that it doesn't pay to arrive late at an auction, the first mover is expanding at a breathtaking pace. Based on gross sales, eBay is the top online marketplace in Australia, Canada, Germany, Korea, the UK, and the US. In February, it acquired iBazar, a French auction with 2.4 million European users.

By publishing its programming interface in February, eBay made it simpler for outfits like MotorcycleWorld.com and AuctionWorks to manage auctions on behalf of clients like Sun Microsystems and ritzcamera.com.The payoffs:deeper inventory, more transactions, higher price points, and powerful vendors with a stake in eBay's success.

Even so, CEO Meg Whitman's goals are ambitious. Her intention to pull in $3 billion annually by 2005 demands average revenue growth of 50 percent a year. Meanwhile, the company's share price hovered at 198 times earnings in April. That gives eBay a lot of cash to play with – and a long way to fall.

As high tech businesses wither all around him, EMC executive chair Mike Ruettgers still talks about growth. Last year, the leading vendor of data-storage systems focused on the burgeoning market for networked disk arrays, an essential purchase for companies that need to keep distributed operations in sync. And thanks to long-term customer relationships – plus a dash of prescience – EMC gets less than 12 percent of its revenue from dotcom clients.

Although tech-spooked investors bid down the stock a chilling 70 percent between September 2000 and March 2001, EMC's prospects look as bright as they did throughout the '90s, when it was the NYSE's best-performing ticker symbol. Nearly half its fiscal 2000 revenue came from new products, and the company plans to spend $1 billion on R&D in 2001, much of it directed toward software that makes its hardware work even better. An emphasis on software – with its tantalizing margins – has kept EMC one step ahead of competition from Sun, Compaq, IBM, and HP.

In a recent report partially funded by EMC, UC Berkeley economist Hal Varian calculated that the world would create more data in the next three years than it has in the past 300,000. Count on EMC to make sure there's a place to put it all.

Politicians may blame California's energy woes on the national spot market for electricity, but that hasn't stopped Enron – the company that practically created it – from replicating the model in other industries. Through EnronOnline, a Web-based exchange that racked up $336 billion in transactions last year, the ultimate commodities market maker has established beachheads in steel, paper, and data storage, while pumping up the volume in its natural gas, electricity, and bandwidth trade.

The latter three, especially, are seeing breakneck growth. Contracts for bandwidth on Enron's proprietary fiber network have multiplied from 1 in 1999 to 320 last year, and the fourth quarter saw more deals than the previous three. "I expect the bandwidth market to grow five- to sevenfold this year," says Salomon Smith Barney analyst Ray Niles. "But that's a drop in the bucket compared with what's ahead."

Still, with legislatures in the western US calling for price controls, and fears of an energy crunch growing back east, it's little wonder that Enron was trading at 52-week lows in April – despite 151 percent revenue growth last year. "If California retreats from market-based energy pricing, it will be a big problem for us," admits Enron president and CEO Jeff Skilling. But as long as the company can find the next high-growth commodities market, Enron will keep wheeling and dealing.

Fedex.com's menu of 26 languages is more than a multicultural nicety. When the site added Chinese in June 2000, package-tracking queries from Taipei rocketed 710 percent in six months. In 2000, FedEx supplanted DHL as the number one air freighter in seven Asian markets.

FedEx's IT investment is boosting margins, too. Each customer call to 1-800-GOFEDEX costs the company $1.52; tracking a shipment via fedex.com costs just 10 cents. At the same time, the newly formed eLogistics Group is working on Net-based ordering, procurement, and delivery systems to help startups enter the global arena.

The company's sweeping ambition hasn't gone unnoticed. Deutsche Post – the formerly government-run German postal service that went public in November, has revenue rivaling UPS's, and owns 50 percent of DHL – can and will block FedEx's access to European air routes. And if the US relaxes restrictions on foreign airline ownership, Deutsche Post could start swallowing US-based FedEx rivals like Airborne. Global opportunity, meet global competition.

According to Charlie Fote, First Data's boisterous president and COO, "Cash and checks are going down" – as in down for the count. Although 70 percent of all US payments are accomplished using cash or checks, Salomon Smith Barney expects this figure to sink to below 40 percent by 2010. Who picks up the slack? First Data. The company processed $425 billion in electronic payments last year (including $20.7 billion in Internet transactions), leading to a steadily rising share price.

First Data's main business is authorizing and posting retail credit card transactions. However, the company's check-verification subsidiary TeleCheck handled more than 3 billion payments last year. What's more, Western Union, acquired in 1996, handles cash payments in 185 countries and territories, potentially extending ecommerce to regions where Visa isn't a household name.

To leverage this multifaceted network into dominance in epayments, last fall First Data formed eOne Global, a joint R&D venture with Goldman Sachs, Boston Consulting Group, and the VCs at General Atlantic Partners. eOne's first project is CashTax, a tax-payment platform that already processes 40 million payments a year for corporate customers – an indication of the enormous businesses eOne intends to develop.

If anything stands between First Data and epayment hegemony, it may be off-the-grid systems like PayPal. First Data is responding with a right jab (MoneyZap, aimed squarely at PayPal's market but with international reach) and a left hook (strong relationships with major banks). Dominant in an area that's destined for steady growth, First Data has a friend in the trend.

Flextronics' ultra-horizontal strategy is a classic new economy play: Provide a razor-thin slice of the value chain on a global basis. Nominally based in Singapore – operational HQ is in Silicon Valley, where the customers are – the company serves as the assembly-line-for-hire to the top names in electronics. Sales nearly doubled in 2000, making Flextronics number two among competitors, just behind Solectron.

Last year got off to a strong start when the company won the contract to manufacture Microsoft's Xbox. Other lucrative deals followed, including a five-year, $30 billion alliance with Motorola and an agreement to manufacture Ericsson handsets, which could be worth $5 billion annually, according to ING Barings analyst Patrick Parr.

Of course, concentrated expertise also means concentrated risk, and depressed demand for consumer electronics could hit the company hard. In mid-March, Ericsson, citing a first-quarter loss, canceled a meeting with plant managers to discuss handing the reins to Flextronics.

Then again, a slowdown gives second-tier electronics companies an opportunity to grab market share. Playing both sides of the game – enabling market leaders to meet growing demand in good times, helping their competitors ramp up when the economy sours – puts Flextronics in a good position to roll with the punches.

Last year's merger of Glaxo Wellcome with SmithKline Beecham made GlaxoSmithKline the world's second-largest drugmaker, with a bottom-heavy balance sheet and projected growth of 13 percent this year. It also put some marketing-and-distribution punch behind SmithKline's R&D treasures.

But the company's new position brings challenges as well. As the top producer of AIDS medications, GlaxoSmithKline landed smack in the middle of a showdown with forces seeking to provide affordable AIDSdrugs to developing countries. Rival Bristol-Myers Squibb, spurred by an Indian drugmaker that threatened to copy brand-name preparations and sell them cheaply, decided to waive its patent rights. GlaxoSmithKline refused to follow suit, instead offering a 90 percent discount.

Meanwhile, the giant is struggling to get new drugs to market fast enough to stay ahead of big-pharma brethren and pesky biotechs. R&D director Tachi Yamada lit a fire under the company's 16,000 scientists with a $3.8 billion R&D budget for 2001 and a plan to restructure the organization to look like a cluster of startups. Employees will receive options and even royalties on sales of medicines they help invent.

Bad news for the economy is good news if your business is helping companies become more efficient. i2's TradeMatrix 5.0 is a network of vertically integrated business hubs that put back-end activities like inventory management together with online access to everything from raw materials to legal services, all running on top of a bulletproof transaction engine.

Building on its foothold in the high tech, automotive, and apparel industries, i2 took on telecom, energy, foods, textiles, and logistics with spectacular results last year. And having digested its $9.3 billion acquisition of Aspect Development last March, i2 returned to profitability in early 2001. Still, serving as a central nervous system for high-profile businesses can be risky, as the company learned in February when Nike made TradeMatrix a public scapegoat for the shoemaker's missed quarterly earnings target. Supplier and client buried the hatchet, but not before it had lopped off 22 percent of i2's share price. Six weeks later, i2 missed its own earnings estimate.

Still, i2 must be doing something right. In the past year, the company has lured Applied Materials and AT&T Wireless away from Oracle, and stolen UMC and Whirlpool from SAP. If it can make all its clients more profitable, it just might impact the GDP. Recession? What recession?

The human genome may be public domain now, but it's useless without information about the properties of the genes themselves. Incyte develops and licenses this perspective in the form of databases like LifeSeq Gold that help drugmakers get products to market faster.

Incyte moved onto the Web last year, making its databases more accessible, cost-effective, and up-to-date. That helped crack the previously untapped – and potentially huge – Japanese market; Sumitomo Pharmaceuticals was among the first to sign up via Incyte.com.

Meanwhile, the company is adding value any way it can. Its trade in ancillary tools such as cloned genes grew 50 percent last year. What's more, Incyte will collect royalties on any product developed using its data. The first Incyte-enabled drugs are scheduled for clinical later trials this year.

The upside is huge, but the R&D isn't cheap. So Incyte's most important move in 2000 was financial rather than scientific: It raised $620 million, partly by selling shares that Wall Street snapped up for more than $100 each. With money in the bank and an expanding client base, Incyte has a line on serious revenue growth. Profits? Patience.

Year after year, Intel faces the same question: How much longer can it rule the market for PC processors? With 80 percent market share and $33.7 billion in revenue in 2000, the chipmaker continues to beat rivals from AMD to Transmeta.

But competitive muscle doesn't address bigger issues about the PC's future. Slumping sales at Dell and Compaq, Intel's largest customers, suggest that people are shaking off the need for perpetual upgrades. Meanwhile, Intel's longstanding strategy of pumping money into anything that might boost demand for fast CPUs has led it into increasingly unfamiliar territory, like MP3 players and toys.

"When times grow tough, it's critically important to develop the next era's technologies," says Sean Maloney, Intel's executive VP of networking and communications. Accordingly, the company will pour $4.2 billion into R&D and fab equipment this year, betting that the demand for high-performance chips – not only the Pentium 4 but the StrongARM for handhelds and Itanium for workstations and servers – will boom when the new facilities are finally operational.

Intel is one of the few Net economy companies that must live by a five-year plan (the time it takes to build today's monster chip fabs). What it needs to do now is considerably harder: reinvent itself again.

The armsmaker metaphor often used to describe JDS Uniphase has never been more apt than it is now. While network dealers like Cisco, Juniper, Lucent, and Nortel battle to dominate a market that encompasses everything from telcos to mid-level corporations, JDS has assembled an unsurpassed catalog of key optical components that keep bandwidth rising.

JDS Uniphase may be "the Intel of the telecosm," as futurist George Gilder puts it, but the firm also shows a Cisco-like talent for stock-fueled acquisitions. In seven gulps last year – capped by the $41 billion purchase of arch rival SDL – JDS swallowed up nearly all its remaining competitors, fueling remarkable top-line growth. Net sales in the second half of 2000 outstripped those of the same period in 1999 by 468 percent.

The flip side: Comparing the final half of 2000 with the same period in 1999, JDS racked up a 263 percent loss. And, like other tech companies, it's predicting slower growth during 2001. Wall Street has pummeled the share price, knocking it from its high of $146 down to $21 in late March.

Make no mistake: Demand for network bandwidth is booming. If JDS Uniphase can use the breadth of its holdings to anticipate its customers' technology needs, it will profit from anyone's battle plan.

Don't be fooled by the brick-and-mortar trappings; Marriott International runs an information-age lodging operation. It doesn't own the hotels under its aegis. Rather, it rents franchises and sells management services, retaining full control over the bare essentials: branding and service.

This strategy has brought eight years of earnings growth. Profit rose by 19.8 percent last year as Marriott boosted its room tally to 390,000, with new locations in Africa, North and South America, Asia, Australia, Europe, and the Middle East. The slowing US economy has forced competitors like Hilton and Starwood to scale back, but Marriott plans to add 175,000 more rooms by 2003.

Information technology should absorb some of the expense. Avendra, a new Web-based procurement center that pools Marriott's purchasing power with that of Bass, ClubCorp, Hyatt, and Fairmont, is expected to save millions of dollars within a few years. The Web is already shrinking costs in other ways. Bookings on Marriott.com, which grew 200 percent last year, cost the company half as much as reservations made by phone. It will take savings like that – and more – to offset what many observers expect to be a difficult year for the hospitality industry.

Battered by legal and market forces, Microsoft faces three big ifs. If the .Net software-as-service initiative pays off, Redmond will escape the desktop ball and chain. If the Xbox wins the hearts of gamers, the House of Gates will crack a lucrative new market. And if the US Court of Appeals sees things Microsoft's way, the company won't have to reformulate its strategy.

.Net is an XML-enabled architecture for apps that reside on central servers. The revenue model is still uncertain, and Sun is pursuing the same goal using Java. But without .Net, Microsoft remains dependent on Windows and Office, which account for 70 percent of sales, even as the PC market withers.

The Xbox, scheduled for release later this year, leverages game developers' familiarity with Microsoft's DirectX programming interface to attack the $7 billion-a-year trade in consoles and games. It's a big bet: Each unit will cost Microsoft $75 to $150, according to Salomon Smith Barney analyst Richard Gardner, which Microsoft hopes to offset with royalties on game sales.

Meanwhile, with Court of Appeals judges accusing their colleague Thomas Penfield Jackson of using "sleight of hand" to prosecute his case, the Big Split is looking less likely.

Tomorrow's precision-targeted drugs will make today's preparations look like sledgehammers. In the transition from brewing compounds aimed at symptoms to crafting molecules that pinpoint underlying causes, Millennium is a pioneer.

Millennium's R&D method automates the pharmaceutical industry's usual handcrafted approach. Where most pharmas tinker with one technology, such as genomics or proteomics, Millennium's pipeline connects virtually all current approaches to evaluating new drugs. This integrated process enables the company to discover promising medicines in 18 months, rather than the usual 24 to 36.

The prospect of saving big pharma big money has already yielded roughly $2 billion in agreements with a who's who of top drugmakers. Even more impressive is the cooperative nature of some of these deals. Bayer Pharma, for instance, pays Millennium $70 million a year to deliver promising leads, but lets Millennium market those it rejects. Millennium now has six of its own drugs in clinical trials, and the cancer drug Campath should reach the market by summer.

MLNM has been caught in the tech-stock downdraft since last November, which raises a potentially lucrative question: How much would you pay for a piece of Ford just as Henry is switching on the assembly line?

Media kingpin Rupert Murdoch dragged his feet getting into the Web game, but he would have been better off staying out altogether. Bad investments in companies like Juno, WebMD, and sixdegrees.com cost News Corp. $293 million in Q2 of fiscal 2001. Damage to the bottom line would have been greater if not for the Filmed Entertainment group, whose operating profit quadrupled thanks to sales of the X-Men video. Such are the advantages of a global empire with print, broadcast, cable, and film divisions.

Net bets aside, Murdoch's dream – satellite-based interactive digital television – may yet revolutionize the mediasphere. Cable is still the favorite; Forrester Research analysts predict that satellite penetration will top out at 20 percent in the US. But where cable infrastructure doesn't yet exist – most of the world – satellite is the only option. Market researcher Cahners In-Stat Group predicts that by 2005, digital-satellite subscribers will number 95 million worldwide, while digital-cable customers will come to 48 million.

Murdoch still has his eye on Hughes Electronics' 10 million-subscriber DirecTV, which would give him the broadest line of sight in the US and extend his analog-transmission reach to 95 million viewers worldwide. Considering AOL Time Warner's 13 million cable customers and feeble international presence, it looks like News Corp.'s dreamer is wide awake.

Nokia's sleek handsets helped transform mobile communications from luxury to necessity. But even 34 percent market share and 19 percent operating margin – more than twice that of any competitor – aren't enough to guarantee dominance as providers prepare to roll out high-speed third-generation wireless services.

Nokia Networks, Nokia's infrastructure division, has a huge investment in the GSM standard. But 3G is an extension of the competing CDMA spec. "With the world shifting to W-CDMA," says Brian Modoff of Deutsche Banc Alex Brown, "Nokia will have to do a lot better than the single CDMA phone it's selling at the moment."

Amid furious hardware development, the company is also working on middleware between OS and UI that will turn phones into full-fledged interactive appliances. This is a new business for the Finnish manufacturer, but Nokia is legendary for quicksilver development that gets new products to market while sales are still brisk and prices still high. If it can translate this skill from hardware to software, Nokia will continue to define the borders of the wireless world.

In a troubled industry like steel, leading-edge technology and progressive management can get you only so far. Last year, the keen efficiencies of Nucor's revolutionary minimills didn't make up for the falling price of flat-rolled steel, which sank an average of 12.5 percent. With competitors ramping up production in Brazil, East Asia, and Eastern Europe, capacity will outstrip demand for some time to come.

Still, president and CEO Dan DiMicco sees opportunity. Because the company melts down scrap for much of its raw material, its production costs shrink along with steel prices. And given that Nucor was one of only two US steel producers to turn a profit in Q4 2000, its shares remain at a relative premium. DiMicco intends to use that currency to buy smaller steel companies, then fire them up with Nucor's innovations.

After a costly failure to patent its thin-slab rolling process in 1999, Nucor is getting smarter about its intellectual property. Last year, the manufacturer formed a separate enterprise to market its strip-casting technology, which makes high-end sheet steel at prices that undercut lesser-quality stuff. Within a few years, the steelmaker expects high-margin licensing revenue to supplement its metal sales. Next up: HIsmelt, a low-cost, low-energy, low-emissions iron-making process that also produces electricity.

Global businesses make mountains of data. Just the names and numbers generated by sales, marketing, and procurement can become unwieldy. Even worse, the solutions designed to manage each department's information (Siebel in sales, Epiphany in marketing, Ariba in procurement, and so on) are notoriously incompatible. Now multiply the confusion by the number of offices in a distributed corporation. E-Business Suite, Oracle's new family of multilingual apps, brings order by uniting everything in one Oracle9i database. CEO Larry Ellison claims it saved his company a billion dollars last year.

This year is a different story so far, as Oracle's performance heads south along with the rest of the high tech sector. Database sales grew 6 percent in Q3 of fiscal 2001, compared with the usual 15 to 20 percent. The company responded in March by announcing that it would cut nearly 900 jobs in all departments – everywhere but R&D.

Oracle remains not only the number one database company, with 42 percent of the market (double that of its nearest competitor, IBM), but also the second-largest software vendor. And its products are complex enough that it actually makes most of its revenue selling services: $5.7 billion in fiscal 2000, compared with $4.4 billion in software sales. E-Business Suite currently makes up 22 percent of the latter figure, a number Ellison has vowed to raise to 50 percent.

By pitting the company against the likes of i2 and Siebel, Ellison risks neglecting his core business only to be trounced by hungrier competitors. Then again, his customers – which include 98 of the Fortune 100 – aren't likely to disappear into the Nasdaq black hole.

The Net's potential to enable collaboration reaches into every corner of industry. While Oracle and company build platforms that coordinate large-scale enterprises, PTC has focused on integrating the relatively confined, but no less exacting, area of product development. The Pro/Engineer application transformed industrial design, engineering, and manufacturing into a seamless, interactive whole, and last year's Windchill suite brought these capabilities to the Web. Phase three: Plug into online industrial exchanges.

The Exostar aerospace hub added Windchill in February, and Oracle is tying it into the Oracle Product Development Exchange. Partnerships with consulting firms like Accenture, Deloitte & Touche, and Ernst &Young promise to spread the word beyond PTC's strongholds in the automotive, electronics, plastics, and shipbuilding industries.

It will take time for this strategy to affect the bottom line, but PTC's conquest of the Web is already beginning to pay off. Although Pro/Engineer sales slumped in 2000, leading to a 12.2 percent drop in revenue and a $4 million loss, Windchill revenue more than doubled to $175 million on the strength of orders from Lockheed Martin, Ingersoll-Rand, and KLA-Tencor. With 30,000 Pro/E customers and rest of the business world starting to jack in, PTC has room to grow.

Apostles of pure fiber optics were taken aback last June when Qwest yoked its thoroughbred digital network to a plodding cash cow, US West, in a $58 billion acquisition. But it's hard to argue with success. The deal gave Qwest CEO Joe Nacchio the cash flow he needed to fund a $9.5 billion expansion of high-growth wireless, DSL, Web hosting, and IP transport services – and 29 million customers to sell them to. This guy isn't fooling around: He cut 15 percent of his Baby Bell's workforce – 11,000 jobs – even as revenue from data services grew 40 percent in fiscal 2000.

Nacchio plans to roll out video-over-broadband in 14 US West-serviced states over the next few years. Meanwhile, he's making an aggressive push in Europe. KPNQwest, jointly owned with Dutch telco KPN, is scheduled to complete a fiber network connecting 50 European cities by the end of this year.

Qwest's share value has been savaged with the rest of the telecom market, dropping roughly 50 percent between March and December. But owning US West appears to have kept the company out of the vortex that has enveloped cash-strapped new-breed carriers like Global Crossing and Level 3 – and out of the Jurassic swamp that has mired AT&T and WorldCom, with their aging gear and shriveling long distance revenue.

Reuters combines data with the ability to act on it. The company's financial news goes out to institutional investors over a private network, and to the public via the Web. When it prompts a trade, the Reuters-owned Instinet ECN can execute and clear the transaction.

Integrating these two sides of the business has been the job of Tom Glocer, a former M&Aattorney who will step into the CEO position in August. Amid an ongoing $750 million effort to upgrade the company's proprietary networks for the Internet era,Reuters launched Factiva (a Nexis-like news service) and Radianz (an online financial community), acquired French trading-software developer Diagram, and developed a high-security mobile communications platform.

Not all the year's ventures panned out. Last summer, as online trading ebbed, Reuters scuttled Instinet.com, a bid to extend the trading network to retail investors. It also pulled the IPO of Greenhouse, the company's R&D-cum-VC arm, as its investments dried up.

With fiscal 2000 revenue up 15 percent and net profit up 25 percent, the company plans to apply its expertise beyond finance, setting up information-and-trading platforms akin to Enron's commodities markets. But the big event of 2001 will be Instinet's $475 million IPO. The capital should give the trading network the financial independence it needs to partner with whomever it wants, while its parent (and majority owner) continues to spin data into gold.

The more people communicate electronically, the more they want to meet face-to-face. This puts the Sabre system, a networked database that handled $75 billion in airline, hotel, and auto rental bookings last year, at the center of a new economy sweet spot.

Sabre's retail venture, Travelocity.com, faces new competition from Orbitz, an alliance among American, Delta, Continental, Northwest, and United Airlines. But total online travel sales are expected to come to only $16.7 billion this year, and margins are getting tighter. In February, Northwest and KLM Royal Dutch Airlines stopped paying a 5 percent commission for online ticket sales – news that forced Travelocity's stock down 33 percent in one day. If other airlines follow suit, Travelocity's top line could shrink by 25 percent, says Forrester Research analyst Henry Harteveldt.

But Sabre was already shifting its online priority to helping its travel-agency clientele make the most of the Web. Launched in late 1999, Virtually There lets agencies offer their customers a personalized travel portal. And in September, Sabre bought GetThere, a corporate travel hub that generated $28 billion in sales last year. In late March, the company sold off its low-margin IT-solutions business. That leaves Sabre with an extra $670 million in the bank, a sharp focus on travel services that grew 26 percent in 2000, and nowhere to go but up.

A great enterprise needs great ideas, but brilliant execution is what makes it gush profits. For oil-exploration innovator Schlumberger, whose skill at extracting and analyzing geologic data helped to nearly double the world's oil reserves in the 1980s, acquiring tech developers as a hedge against the oil industry's downturns seemed sound. But so far the company has failed to weave its parts into a profitable strategy. In the divisions devoted to smartcards, semiconductor test gear, and utility metering, pretax earnings fell an average of more than 20 percent last year.

On the other hand, after a two-year industry slump, surging demand for oil has revitalized the business of helping petroleum suppliers find every last drop. Pretax profit in the oil-field services division swelled by 73 percent last year. Schlumberger seized the opportunity to launch IndigoPool.com, an oil industry hub, and WesternGeco, a reservoir-mapping joint venture with competitor Baker Hughes.

The windfall should also buy time to integrate the nonoil parts of the operation, but recent signs aren't encouraging. Schlumberger's latest purchase, systems consultant Sema, puzzled investors, who beat down the share price 13 percent in the eight trading days after the February 12 announcement. "To go from oil services and smartcards into customer care – sure, it's technology, but it's a big jump," says Yankee Group analyst Paul Hughs. Rex Ross, Schlumberger VP of communications, disagrees, insisting that "Sema's skills are critical to our business." We'll be looking for evidence on this year's bottom line.

The preholiday release of PlayStation 2 was supposed to mark the debut of the new Sony – an entertainment megaforce ready to parlay its considerable strength in computers, electronics, and content into a dominant position in the broadband future. Who would've thought a Sumo wrestler could trip over a silicon chip?

Rather than designing its next-gen game console around off-the-shelf silicon, Sony conceived the Emotion Engine, a devilishly complex chip that pushed production way behind schedule. Thus, even as postlaunch demand surged, PS2s were in painfully short supply. Shipments got up to speed by March, but by then gamers had set their sights on Microsoft's Xbox (built with chips from Intel and Nvidia, natch).

Sony missed its PS2 sales goals by more than a million units. The cost: alienated customers and developers, and a 23 percent drop in net earnings for Q4 2000 that forced the company to slash its 2001 earnings forecast by 50 percent.

Of course, there's more to Sony than the PS2, like blockbuster movies and the strongest brand in consumer electronics. And the PS2 may yet be vindicated. There's a reason Sony created the Emotion Engine: It can do things that don't come easily to a Pentium 4. Upcoming games that link the PS2 with NTT DoCoMo iMode phones hint that Sony has a few more tricks up its sleeve.

Playing guardian, bookkeeper, and back-office clerk to $6 trillion in institutional assets requires, above all, supreme dependability – which is why, as State Street vice chair Nick Lopardo likes to say, "The story doesn't change a lot from year to year." Nonetheless, the 208-year-old firm's fund-manager clients demand ever faster, more versatile access to their accounts, which State Street provides through services like Global Link, an IP-based network that combines investment research, risk management, and real-time trade execution. With clients in 92 markets, State Street is a force in foreign exchange as well.

International markets hold the key to long-term growth: As European pension funds go private, State Street stands to snag more contracts like the one it landed in October with Scottish Widows, a leading UK fund manager. Bigger deals are brewing in Asia, where State Street is one of the few Western firms to be allowed to run mutual funds in China.

A $282 million profit from State Street's 1999 sale of its commercial banking business skewed FY 2000 earnings growth, but the company claims a compound annual growth rate of 17 percent over the past 10 years. Although depressed stock prices might eat into its income in 2001, over time State Street's asset pool is bound to bulge with the investments of an aging world population.

The market for industrial-strength servers revolves around Sun. Despite the dotcom crash, the company's server sales jumped 45 percent last year, most of them at the expense of rival IBM.

But growth has slowed in 2001 as customers have slashed tech spending – which is why Wall Street stripped $97 billion from the company's market capitalization in Q4 2000. One response has been to expand into related areas, notably storage. Another is classic Sun: Spur demand for servers with innovative software like Brazil, a toolkit for building Net-based apps.

CEO Scott McNealy envisions a world of pervasive high-speed networking, where intelligent lawn sprinklers adjust their output to the latest weather report.The ubiquitous Jini-powered network is still around the corner (developers found the early code alarmingly memory-hungry), but there's time. As long as network traffic continues to grow, Sun will shine.

Vodafone CEO Christopher Gent spent the past year transforming Vodafone into the only mobile communications company with truly global reach. His stunning $181 billion hostile takeover of German telco Mannesmann was only the beginning. In the States, he bought Commnet for another $1.4 billion, then merged Vodafone's US wireless operations with those of Bell Atlantic and GTE to form Verizon, America's largest mobile operator. Then came a $23 billion sweep through Europe (resulting in the first pan-European rate plan), and on to Australia, China, Japan, and Mexico. Today, the company's network extends to 80 million customers in 29 countries.

Achieving that kind of coverage would bankrupt most companies. Gent managed to do it while limiting the company's debt load to only $15 billion, less than 10 percent of its valuation – leaving it fully ready for the next campaign, and with high-flying shares to burn.

Gent's power plays anticipate a worldwide appetite for broadband as voracious as today's demand for voice services. Vizzavi, a mobile portal co-owned by Vodafone and Vivendi, may well foster that demand. But the real action is in Japan, where 3G service is scheduled to roll out in May. There, Vodafone's J-Phone affiliate faces not only an entrenched local competitor, NTT DoCoMo, but also AT&T and British Telecom. The outcome of this battle will prove the mettle of Gent's imperial designs.

During the 2000 holiday season, Wal-Mart's Web site ranked seventh among etailers, with 370,000 unique visitors daily, according to Jupiter Media Metrix. Then the dotbomb hit, forcing Walmart.com to lay off 10 percent of its workers.

Hold the tears: Back in Bentonville, Arkansas, where Wal-Mart HQ commands an army of 1.24 million employees, 24 jobs lost in Silicon Valley didn't exactly spell doom. All along, Wal-Mart's inventory management and logistics system made sure the right amounts of the right products were in the right stores at the right time. The result: 16 percent sales growth overall, including a 41.2 percent increase overseas.

Given the retailer's legendary back-end expertise, its failure to dominate the World Wide Mall is surprising. A late-1999 deal with AOL to offer cobranded Net access has yet to bear fruit. And after accusing Amazon.com of poaching IT staff for trade secrets, Wal-Mart is reportedly sniffing out the bookseller as a possible partner.

Which might not be a bad idea. At this point, hanging back while other online retailers burned through billions – then hooking up with a master of online marketing – might be the smartest ecommerce strategy around.

Disney's newest theme park, California Adventure, opened in February at an opportune moment: It helped deflect attention from the company's misadventure on the Web.

With Go.com bleeding money and single-digit earnings growth projected for the entire Walt Disney Company in fiscal 2001, CEO Michael Eisner's decision to kill the Web portal – made in January and, no more encouraging, retracted in March – was hardly a surprise. In another act of retreat, the company decided to convert its Internet Group tracking shares back into Disney stock.

Disney's mastery of cross-media marketing is legendary, but it hasn't translated into profit online. While the Internet Group's revenue tallied $392 million in fiscal 2000, the Parks and Resorts group posted record sales for the sixth year running at $6.8 billion, and the Media Networks division posted $9.6 billion, up 21 percent.

Even that wasn't enough to forestall an extraordinary round of layoffs in March, when the company cut 4,000 jobs. The new austerity might be enough to finance experiments like the closely guarded plan to turn Movies.com into a virtual video store. If Disney can pull off video-on-demand – which has eluded all comers so far – the California adventure may get back on track.

What's all this about an advertising downturn? Advertisers still need to get their messages across. Audiences are more fragmented, diverse, and dispersed than ever, and media channels are proliferating faster than ways to say "Whassup?" An ideal opportunity for WPP Group.

From its humble roots as a maker of wire baskets, WPP has grown into the world's premier marketing powerhouse, a status sealed by the $4.8 billion purchase of Young & Rubicam last October. Operating in 102 countries, the Group comprises not only the biggest names in traditional advertising (Ogilvy & Mather, J. Walter Thompson), but also interactive advertising (wpp.com), media buying (MindShare), public relations (Hill and Knowlton), and market research (Kantar). Clients include 300 of the Fortune 500 and half of the Nasdaq 100, including high-profile brands like American Express, Ford, and IBM.

Revenue grew 39.8 percent and profit 41.6 percent in 2000 – results partly attributable to what CEO Martin Sorrell calls "punching and kissing," a combination of cooperation and competition among WPP subsidiaries. Come to think of it, integrating a zillion different marketing channels might be less challenging than pulling together all those querulous fiefdoms. It's a good thing Sorrell knows how to cut through the noise.

Yahoo!'s reliance on ad sales for most of its revenue in the past year – with dotcoms accounting for a third of the advertising total – have blown the portal pioneer straight into the economic riptide. In March, the simultaneous exodus of top executives, including former CEO Tim Koogle, made the mess look messier.

Though it's tempting to think the answer is a pay-for-play revenue model, conventional Net wisdom dictates that Yahoo!'s audience won't stand for it. Case in point: The company's auction site suffered an 80 percent drop in listings after it introduced a nominal charge last January.

The near-term situation may look dire, but in the long run Yahoo! has room to maneuver. With 185 million registered users, it has enough eyeballs – and data about the customers they belong to – to capitalize on emerging broadband approaches to interactive advertising. Moreover, Yahoo!'s enterprise-services unit is reaping dividends with Corporate Yahoo!, a customizable portal that has already attracted Bayer AG and McDonald's. Yahoo! still has $1.7 billion in cash, no debt, and Net smarts to burn. If nothing else, that ought to attract old media companies looking for a portal to the future.

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